Financial Statements and Auditors' Objectives

REQUIRED:
(1).Discussed the major assertions that can be made in financial statements and auditors' objectives, and some key questions related to each.

(2).Discussed why auditors should act as though there is always a potential conflict of interest between the auditor and the management of the enterprise under audit.

(3).Explained the difference between auditing standards and audit procedures.

Solution Preview

Auditors are not responsible for the preparation of the financial statements of an entity. This is the responsibility of management. The financial statements prepared by management for audit are a collection of assertions as to both the state of affairs of the entity at balance date and the results of its operations for the period ended on that date. In broad terms, management is asserting to the auditor that the financial statements, and by implication the financial statement items and underlying account balances and classes of transaction, are free of misstatement. That is, that the financial statement items, and underlying account balances and classes of transactions are, in all material respects, complete , valid and accurate. So basically the management asserts to the auditor that the financial statements prepared by it are complete,valid and accurate. The objective of the auditor is to add credibility to these assertions. So the basic question that arises is how sure the auditor can be while giving credence to the management's assertions. The auditor in order to give the credence, should have fair understanding of the internal policies/guidelines of the entity and the external guidelines/obligations for the entity. The degree of accuracy of ...

Solution Summary

This is a duscussion of the major assertions that can be made in financial statements and auditors' objectives, why auditors should act as though there is always a potential conflict of interest between the auditor and the management of the enterprise under audit and the difference between auditing standards and audit procedures.